Ukrainian Prime Minister Mykola Azarov and the entire government resigned
today in a surprise move after controversial elections as the economy
teeters on the brink of recession.

The presidency said President Viktor Yanukovych had accepted Mr Azarov's request to give up his post and become an MP, a move expected to be repeated by several cabinet ministers.

It remained unclear who would fill the powerful post of premier, with some analysts speculating it could go to a member of the elite close to Mr Yanukovych known as the "Family".

"President Viktor Yanukovych accepted the resignation of Prime Minister Mykola Azarov, satisfying the demand of the latter," the statement added.

The move cames as a new parliament prepares to meet after October 28 legislative elections which raised new concerns about democratic standards under Mr Yanukovych.

The ruling Regions Party appears to have retained control of the Verkhovna Rada with the help of independents despite a strong challenge from the opposition parties of boxer Vitali Klitschko and imprisoned ex-premier Yulia Tymoshenko.

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OSCE observers slammed the polls as a setback for Ukraine, marred by the absence of Ms Tymoshenko who is serving a seven-year sentence on abuse of power charges she says were trumped up by Mr Yanukovych.

But economists also fear the country is entering troubled times and could be on the brink of a new recession that would see it seek billions of dollars in disbursements from an IMF standby package.

Ukraine's economy contracted by 1.2 percent in the third quarter of this year, and several banks fear the country is heading for zero growth in 2012, not to mention a sharp devaluation of the local currency.

"This (the resignation) is linked to a number of economic challenges which Ukraine has fallen into thanks to this president and this government," said opposition leader Arseniy Yatsenyuk.

A Russian-speaking bureaucrat mocked by many in Ukraine for his dry and humourless image, Mr Azarov took office in 2010 shortly after Mr Yanukovych defeated Ms Tymoshenko in a fiercely-contested presidential election.

Mr Azarov has always been seen as a close ally of Mr Yanukovych, but some analysts believe his power base has been undermined by the recent rise of a "Family" of close acquaintances of the president into top positions.

mr Arbuzov, 36, is seen as a key member of the "Family" of Yanukovych allies.

His meteoric rise to one of the most important economic jobs in the country has raised eyebrows in Ukraine. He is a confidant of Mr Yanukovych's increasingly powerful son Olexander, who is regarded as the Family kingpin.

"It is possible that this radical resignation makes sense; it is better to dissolve the government and appoint another one," said Kostyantyn Bondarenko, head of the Ukrainian Politics Institute.

He said that resignation made sense for Mr Azarov, who was approaching the pension age of 65 and would have had to work on replacing a string of ministers had he stayed in power.

Mr Yanukovych has been criticised for concentrating ever more power around himself and allies since defeating the leaders of the pro-Western Orange Revolution in the 2010 polls.

Other candidates for prime minister could include national security chief Andriy Kluyev and deputy presidential chief of staff Iryna Akimova.

Ukrainian parliament speaker Volodymyr Lytvyn said that a decision on the composition of the new government could be taken on December 13 or 14 after the new parliament convenes.

The ministers will remain in their posts until a new government is formed, the presidency said.

It also noted that under Ukrainian law, whenever the prime minister resigns the entire government must do so.

The presidency explained the mass resignation by saying that Mr Azarov had decided to take up a parliamentary seat rather than staying on as prime minister.

Under Ukrainian law, deputies have to cease their former work in order to take up their seats in parliament.

Along with Mr Azarov, a number of other ministers were elected to parliament including Deputy Prime Minister Sergiy Tigipko and Economy Minister Petro Poroshenko.